Last week was highly volatile. Gold had a pretty short covering on Friday as it ranged from $1790 – $1815, but just within a few hours, it reclaimed back $1785 – $1790. Silver, on the other hand, was up to nearly 10% in the past 4-5 weeks. And now, after forming a base near $23.75-24.00, it steadied for $25.50 early this week.
Yellen said categorically that this higher inflation could last until mid-2022. In retrospect, small investors remained negative towards gold concerning gold ETF holdings falling consistently over the last two weeks. With the US Dollar forging a temporary lower low to start the new week, we give the edge to the bull camp. As indicated already, surging Bitcoin and other inflationary signals could finally be “waking up” gold and silver, says the bullion king of India – Prithviraj Kothari!
The US markets are again hitting new life highs with Tesla staying under the spotlight as it attained a $1 trillion MACAP. Gold almost hit our target near $1713, but silver legged the momentum. Gold ended above $1800 on Monday for the first time since 14th September. But gold will face a hurdle in the short term by staying near $1815 – $1820. It could see a big round of short-covering while taking out of this band. However, before that, $1795 – $1800 consolidation is possible.
There was a slight recovery in the dollar, but this was not a good thing for gold. However, prices are not expected to fall sharply, as investors like Prithviraj Kothari have realised that the bigger picture is even more uncertain and that risks are still just behind the corner.
Gold prices fell on Tuesday after a five-session rally, as the dollar steadied, and investors awaited key central bank meetings for clues about rate hikes amid rising inflation concerns. Investors have shifted focus to the policy meetings of the Bank of Japan (BoJ) and Bank of England, and the European Central Bank (ECB) due on Thursday, followed by next week’s U.S. Federal Reserve. The US GDP data for the third quarter was also on their radar.
Gold is often considered as an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, increasing non-interest bearing bullion’s opportunity cost. Gold should remain relatively well-supported in the current inflationary environment until we get a hawkish pivot from the Fed.
Given the tremendous inflation pressures currently exerting themselves in the economy, the late 1970s may be the best model for what to expect going forward. It would mean the rising price levels are combined with a weak economy (stagflation). And given that the US debt load today is over four times higher as a share of the economy than it was in the 1970s, investors should brace for the potential of a far greater financial crisis. When it comes to a financial crisis, investors will want to have gold on their side based on data from yesteryear. It is well known that in times of uncertainty and a financial crisis, gold has always proved its worth as it has vastly outperformed other assets in its class.
From a micro perspective, investors and the bullion king of India only have to look at the current market landscape, and as many analysts are eyeing inflation as the next major market disruption. The talks of stagflation, higher interest rates, and low economic growth could provide the perfect backdrop for investors to start adding gold. Should the markets get shaken up again, gold can offer an ideal respite from equities exposure.